Guest Article
(From the September 8, 2009 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)
Labor Department Provides Unofficial Views on ERISA Compliance Questions
Department of Labor staff gave their unofficial views on questions presented by the ABA's Joint Committee on Employee Benefits, including the making of distributions to missing or unresponsive participants, when a top-hat filing is required, and whether an accountant who provides services to the plan sponsor is considered "independent" for plan audit purposes. Questions and Proposed Answers for the Department of Labor Staff for the 2009 JCEB Technical Session Held on May 7, 2009," ABA Joint Committee on Employee Benefits.
Non-Binding but Insightful
Based on informal responses received from the Department of Labor staff at a meeting held earlier this year, the American Bar Association's Joint Committee on Employee Benefits released a set of questions and answers concerning ERISA compliance. While the responses are not binding, they reflect the thinking of the DOL staff and provide insight on how certain legal requirements are viewed. The staff declined to comment on several questions, including a number relating to qualified domestic relations orders. Of interest are the staff's views on:
- Distributions to Missing or Unresponsive Participants. In the case of a terminated defined contribution plan, the fiduciary is required to provide notice (including a distribution election) to the participant. If the notice is returned as undeliverable, the fiduciary must take steps to locate the participant consistent with its fiduciary duties under ERISA § 404(a)(1) (i.e., the duty to act prudently, for the exclusive purpose of providing benefits to the participants, etc.). If unsuccessful in locating the participant after those efforts, the participant is deemed to have received notice and elected distribution, and the fiduciary may then make distribution to an IRA that meets the safe harbor requirements. This is also the case where the notice to the participant is not returned as undeliverable but the participant fails to make an election within 30 days. The staff went on to explain that, instead of a rollover to a safe harbor IRA, the fiduciary can alternatively make distribution to a bank account or to an unclaimed property fund under state escheatment procedures, but these will not qualify for the safe harbor. (A fiduciary is deemed to have satisfied its fiduciary duties under ERISA § 404(a) if the distribution is made in accordance with the safe harbor requirements of DOL Reg. § 2550.404a-3.)
Similar relief is provided for ongoing plans that provide for the mandatory cash-out of benefits of less than $1,000. The safe-harbor distribution provisions are available in that case to allow distribution if the participant fails to make an affirmative distribution election. DOL Reg. § 2550.404a-2.
- Missing Participants and ERISA Protection After Plan Termination. Generally, under Field Assistance Bulletin 2004-2, once a benefit is distributed the assets cease to be plan assets protected under ERISA. However, the fiduciary's choice of a distribution option is a fiduciary decision subject to the ERISA requirements. For example, where a fiduciary is unable to find an IRA provider who will accept rollovers for missing participants and must decide between making a distribution to a bank account or to a state unclaimed property fund, the fiduciary has an obligation to evaluate the bank account's associated fees and interest accruals in light of the availability of a state unclaimed property fund with a searchable data base that may facilitate participant recovery.
- Top-Hat Plan Reporting. A "top hat filing" -- the alternative method by which top-hat plans may comply with the ERISA reporting and disclosure requirements -- is generally required for each of the employer's plans. Therefore, if an employer establishes a new plan, a new filing is required. This is the case despite the fact that the filing does not need to identify the plan or plans for which it is being filed. The statement in the regulations that, "Only one statement needs to be filed for each employer maintaining one or more plans ...," was intended to serve as a transition rule when the regulation was first adopted -- or to allow one filing where the employer establishes more than one plan around the same time. To qualify for the alternative method, employers must file the registration statement within 120 days after a new top-hat plan becomes subject to ERISA Title I. An administrator of a plan that did not timely make a "top hat" filing can file the registration statement under the Delinquent Filer Voluntary Compliance Program in lieu of any past due annual reports -- and will be considered as having timely elected the alternative method of compliance.
- Independent Auditor. A plan administrator of a plan subject to ERISA's annual audit requirements must engage an independent qualified public accountant on behalf of the plan participants, and the selection of the accountant must satisfy the fiduciary duty standards of ERISA § 404(a). The determination of whether an accountant is "independent" depends on the facts and circumstances, including any relationship between the accountant or accounting firm and the plan sponsor. An accountant will not necessarily fail to be independent if at the same time it is engaged on a professional basis by the plan sponsor.
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Copyright 2009, Deloitte. |
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